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5/15/2017 8:10:00 PM
New Indiana law gives State Board of Accounts more teeth

Dave Taylor, Tribune-Star

For more than a decade, and possibly longer, the State Board of Accounts has been warning Terre Haute officials about deficits in city funds.

Yet for more than a decade those deficits have grown. Now, a law passed this spring and signed by Gov. Eric Holcomb is designed to turn up the heat on officials who fail to heed warnings about fund shortfalls. That heat, according to the law, can include prosecution to remove officials from office.

Starting in 2005 with a combined shortfall of just over $400,000 in six dedicated funds, the city of Terre Haute’s deficit swelled to nearly $15 million, including $8.9 million in the general fund, at the end of 2015. Following passage of a trash collection fee and a sewer rate increase, total deficits fell to $14.3 million at the end of last year.

Still, any deficit is cause for concern, state officials say.

“The cash balance of any fund may not be reduced below zero,” state auditors have stated in nearly every city audit since 2005, which is as far back as online records go. “Routinely overdrawn funds could be an indicator of serious financial problems which should be investigated by the government unit.”

Auditors say city officials should identify the cause of cash overdrafts and eliminate the conditions that led to them.

“Deficits in fund equity … are violations of state statue,” auditors wrote in reviewing city finances for 2006-08 and 2010-11.

Prosecution to force an official from office should not necessarily be viewed as a last resort, according to Hal Slager, the lawmaker who drafted the legislation.

“It may be the appropriate resort in a case where there is an illegal activity,” said state Rep. Hal Slager, R-Schererville, who stopped short of saying officials who maintain deficits are breaking the law.

“I don’t know that you’d call it illegal, but it’s somewhat of an infraction in that it’s not allowed,” he said.

Slager, a certified public accountant, said the intent of the law, House Enrolled Act 1031, derived from his many years on the Lake County Solid Waste Management Board. Audits of that entity would result in 12 pages of “exceptions” to accounting standards, and the board’s attorney would respond with a 12-page response.

“I remember saying, ‘Rather than spending time writing letters trying to justify why we do things differently, why not just fix the problem?’” he said.

The law requires a corrective plan after two consecutive audits find non-compliance and allows the State Examiner to refer findings to the General Assembly’s Audit Committee, rather than to county prosecutors, who, he says, generally don’t have staffing to investigate financial activities.

The committee can take a variety of actions, including steps aimed at seeking compliance, publishing notice on the General Assembly website about an entity’s failure to comply, recommending a change in state law related to the noncompliance or referring the case to the prosecutor.

Potential charges include “failure to file report, interference with examiners,” a class B infraction, and/or “refusal to adopt or failure to use” a uniform accounting system. Conviction in each case would require forfeiture of the official’s office.

In an interview with The (Muncie) Star-Press, state examiner Paul Joyce said, “You can’t have deficit financing forever.” He was commenting on deficits in Muncie Public Schools, which also date to 2005 and are a major reason he supported the legislation, he said.

Joyce noted in the interview that the city of Terre Haute also had a serious deficit problem. He declined to discuss Terre Haute’s finances with the Tribune-Star pending completion of an audit underway on city spending for 2015.

The city’s last completed State Board of Accounts audit for 2014 showed a general fund deficit of $5.4 million and shortfalls in other funds totaling more than $7 million.

Unaudited figures for 2015 showed an $8.9 million general fund deficit and $6.1 million deficit in other funds. The city’s 2016 year-end report showed the general fund deficit had declined to $8.1 million, but deficits in other funds had grown to $6.3 million.

Mayor Duke Bennett said last week he supported the new legislation as a board member of AIM Indiana, formerly the Association of Indiana Cities and Towns. However, Bennett said he was not aware of the provision that could force officials from office.

Pointing to last year’s reduction in the general fund deficit and a projected further reduction of up to $1 million this year, the mayor said his administration is making progress on the deficits.

“Keep in mind that there are options for us to eliminate these even faster,” he said. “It’s going to be up to the city council to address that. If they’re talking about elected officials being held accountable, it’s not just the mayor, it would be the city council also.”

Bennett said options for further deficit reduction include payment in lieu of taxes (in place for the city’s wastewater utility), user fees and internal funds transfers.

“We’ll be updating our [financial] plan with the council this year,” he said. “I’m feeling pretty good about the direction we’re going; I’m not worried about this at all.”

Karrum Nasser, city council president, said the council’s job is to approve or disapprove of the mayor’s budget, Last year, with four new members, the council reduced Bennett’s proposed budget by $1 million.

“It’s up to him to be able to find savings as well to tackle the deficit, other than everything being revenue-based. The council has done its part, assisting with the new revenues,” Nasser said.

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